tv Nightly Business Report PBS April 8, 2010 1:00am-1:30am EDT
>> there's a presumption there that the fed is an independent agency, and it is up to a point. but we are a creature of the congress. >> susie: a congressional commission grills the former fed chairman, but alan greenspan says the financial crisis wasn't the fed's fault. >> tom: he's not the only one defending his role in the crisis. goldman sachs is telling its side of the story too. you're watching "nightly business report" for wednesday, april 7. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. alan greenspan said today "of course we made mistakes". tom, the former chairman of the federal reserve was testifying on capitol hill about the financial crisis. >> tom: susie, he appeared before the financial crisis inquiry commission. and while greenspan accepted some blame, he mostly defended fed policies and his own legacy. >> susie: some of the panel's questions were very critical of greenspan. and the once-revered central banker was clearly on the defensive. washington bureau chief darren gersh reports. >> reporter: testifying before the financial crisis inquiry commission congress created,
former federal reserve chairman alan greenspan gave little ground. at one point, greenspan suggested members of congress were overlooking their own role in bringing on the financial crisis by pushing homeownership for almost everyone. >> having gone 18 and a half years before the congress, there is a lot of amnesia that is emerging currently. >> reporter: still, commission chairman phil angelides pressed greenspan, arguing the fed knew about problems in the sub-prime mortgage market more than a decade ago, but failed to act decisively to correct them. >> i mean, very simply, mr. chairman, why in the face all of that did you not act to contain abusive, deceptive, sub-prime lending? >> why did you allow it to become such an infection in the marketplace? >> reporter: it was not the fed that caused the problem. greenspan said it was the government-sponsored mortgage giant's fannie mae and freddie mac who bought up sub-prime loans and inflated the bubble. that prompted angelides to blame
the explosion of sub-prime lending on wall street. >> if you look at that 2002 to 2005 period, the private market, wall street, was anywhere from 59% to 92% of that private label security market. that's just a fact. >> reporter: but greenspan went on, arguing that even if the fed had tried to stop sub-prime lending, it couldn't. the fed had little authority over the wall street investment banks like bear stearns and lehman brothers, who were packaging sub-prime loans and creating complicated securities. and, he said, congress would not have allowed the fed to bring the market down. >> and, if in that midst of period of expanding home ownership, no problems perceived in the sub-prime markets. had we said we're running into a bubble, you would have to start to retrench, congress would say, we haven't a clue what you are talking about. >> reporter: after greenspan
spoke, the commission focused in on mortgage underwriting practices at citigroup. it was richard bowen's job to make sure mortgages worth $90 billion a year went to credit-worthy borrowers. all too often, he says, they didn't. >> during 2006 and 2007, i witnessed business risk practices which made a mockery of citi credit policy. >> reporter: in november 2007 a frustrated bowen warned former treasury secretary robert rubin, then chairman of citi's executive committee, that lax credit standards were putting the bank at risk. rubin will have a chance to respond tomorrow when he testifies along with former citigroup c.e.o. charles prince. darren gersh, "nightly business report", washington. >> tom: while that washington panel continued looking for the causes of the financial crisis, investment banking giant goldman sachs today offered its answer, and the answer was "not us." scott gurvey explains. >> reporter: in the annual report to shareholders, goldman
c.e.o. lloyd blankfein and c.o.o. gary cohn make their position clear. writing, quote, "the firm did not generate enormous net revenues or profits by betting against residential mortgage- related products, as some have speculated." still there is no denying that goldman made record profits at a time when it was enjoying taxpayer support in many forms and much of the economy was suffering. structured finance expert janet tavakoli says the company is not innocent. >> they managed to prosper at the expense of the average taxpayer. during the time when the country was at war, it created securities that did material damage-- that contributed to the material damage-- to the u.s. economy. and then, in the middle of the crisis, goldman used its influence to exploit the situation to get the kind of deal, the kind of financing, and the kind of benefits that they could only have dreamed about in the past.
>> reporter: blankfein declined an invitation to appear in this report. he did appear in january before the financial crisis inquiry commission where he defended goldman's actions as typical for a market maker. also appearing that day in washington was j.p. morgan chase c.e.o. jamie dimon. in his report to shareholders last week, dimon complained about what he called the demonization of big banks. dimon also declined our invitation to appear on this program. crisis management expert davia temin says the bank's approach may be too late and could backfire. >> the free floating public ire, that is about all of wall street's wealth and seeming profiting from this. there's this rule of reciprocity. so, if somebody on main street is hurting, if they have lost their home, their assets, their jobs, their lifestyles, how do they feel when the people who they think, they may not know because they do not know this stuff that well, end up being
really fat cats. it's not even. it doesn't feel like an american form of justice. >> reporter: there is no evidence these statements are changing the negative image of banks on main street. but regulators and shareholders, rather and main street, may be the bank's real target audience. scott gurvey, "nightly business report", new york. >> tom: here are the stories in tonight's "n.b.r. newswheel". an afternoon report on consumer credit gets credit for today's market sell-off. the dow dropped 72 points, the nasdaq fell 5.5, and the s&p 500 lost seven. big board volume topped one billion shares for the first time this month. we'll take a closer look at the consumer credit numbers in tonight's "market focus". a warning today from federal reserve chairman ben bernanke. he says we need to get ready now for the challenge of balancing an aging population and a massive federal deficit. bernanke says that includes making tough choices like boosting taxes and/or cutting entitlement programs. meanwhile, in a speech in new york city, the head of the
federal reserve bank of new york said the economy's not getting the job gains we need. that's why bill dudley thinks monetary policy has to remain on an easy setting. and a financial update from g.m. the automaker today reported $4.3 billion dollars in losses for the second half of last year. but g.m. says it could turn profitable by the end of this year. and still ahead, tonight's "street critique" guest is looking for a stock pull-back and is playing defense. he's money manager michael farr and he'll tell us why. >> susie: five more states joined florida today to challenge president obama's new health care law. the joint lawsuit claims the reforms violate state government rights and will create financial hardships for states already struggling with economic issues. the president's sweeping overhaul of the u.s. health care system continues to stir up debate. tonight, we get the perspective from the insurance industry. joining us now, scott serota, president and c.e.o. of the blue
cross blue shield association. welcome to "nightly business report". >> thanks, glad to be here. >> susie: i understand you were a big supporter of the reforms when you were going through the debates. now that they are law, what's the impact on the blues? >> well,. >> susie:y, the health care reform is now the law of the land and our job is to ensure that these reforms are implemented in a fashion that works for all americans. the impact will be, will vary depending on what part of the country you're in and your own status. but we're going to work very hard to make sure that she's laws do what they're intended to do. >> susie: as you know, a big worry for many people are insurance prices, and the concern is that they're going to be going up. but with so many millions more people getting into the system now and who will be insured, shouldn't that bring down premium prices?
>> well, there are a lot of provisions in this bill, susie, that will be inflationary toward premiums, there are new taxes that have been put into place that are going to increase premiums, and there are other provisions of the bill that will be inflationary because we didn't really focus as much as we should have and could have on cost containment. that's going to be now left to us in the private sector. and we're going to have to work together, blue cross blue shield companies along with our provider partners will have to work together to find new ways to make health care more affordable as we go forward. because the underlying driver of health care premiums is health care costs. about 85% of the premiums that we collect go to actually paying benefits. we have to make sure that those costs get under control. >> susie: now, so you're going to have more taxes, you are going to be more fees, that is written into the law, what are you going to do aboutle, this
are you going to absorb them yourself or pass them along to consumers and employers? >> well, health insurance is a very low margin business. our profits in our business are very small, and we will have to pass along some of those fees and taxes onto our customers. that's why we want to focus on delivery system reform to get health care costs under control so, that we can ultimately provide a better value to all americans. >> susie: a left people would dispute with you to say that this is a low margin business, there have been so many studies showing that there are huge proves that the insurance companies make. what do you say to that? >> well, the facts are very clear, that health insurance companies profits are very small, particularly as compared to the other segments of the health care continuum, if you will. most blue plans are the blue plans on average profit margin are between 1.5 and 2.5% of the premiums that we collect.
so we're in a very low margin business. >> susie: i'm not going to get into a debate with you about that. i want to move onto ask you what is going to happen to premiums. a lot of people panicked when they saw that well point's anthem blue cross raised premiums in california by 39%. what's going to happen to premiums? >> as i said before, i think premiums will go up, unless we can focus and use the period of time the next three or four years to really focus on health care cost containment. we have to bring costs under control. our population is aging, we have health care costs, we have a health care equation that rewards volumes of services rather than outcome, so we have to change the way in which we pay for services. we have to focus on the cost of pharmaceuticals and other devices to bring the costs under control so that we can in fact ameliorate the future increases in premiums. >> susie: sorry to interrupt, this is a conversation to be
continued, hopefully you'll return and we can continue it. >> i'd be happy to do it. >> thank you. my guest tonight, sko serota of the blue cross and blue shield association. >> susie: you know, over the years the u.s. airways and united have been on these on again off again merger talks. looks like they're back on again. a number of reports late today saying that they're talking merger. >> tom: yes, in fueling some big after hour rallies in both
u.s. airways and united airlines. if there is a combination here, it would create the world's biggest airline, a new combination here, certainly one to watch tomorrow during the session. let's take a look at tonight's market focus. stocks dropped this afternoon after the federal reserve reported consumers put away their credit cards in february. outstanding consumer credit fell more than 5.5%, down below $2.5 trillion. credit card use has dropped in 16 of the last 17 months. so much of the economic recovery depends on consumer spending, and the drop spooked the market. but it was telecom leading the way lower. verizon and at&t were the two biggest percentage losers of the dow industrials. at&t announced a $1 billion investment this year to improve its network. american tower, meantime, runs
cellular phone towers. it's close to matching its march low with today's 2% drop. one other quick note on that at&t billion dollar investment strategy, equipment maker ciena is seen as a beneficiary. it's shares rallied to a six-month high. agri-business giant monsanto wilted after dropping its long-term profit growth targets. monsanto is the biggest seed producer in the world. it also makes round-up herbicide and other farm chemicals. its latest quarter came in a little lighter than anticipated as it cut back on incentives, and farmers were slow to pay up for premium seeds. it also dropped those longer term profit growth projections. analyst laurence alexander at jefferies and company says the market has changed for monsanto. >> there's really three things going on there. one is increased competition in the herbicide business, which is specific to monsanto.
increased competition in the seed business, where they're in a tug of war with dupont and syngenta for market share. and then also some general caution about farmer purchasing behavior. >> tom: shares of monsanto are at their lowest price of 2010, dropping on heavy volume. the jefferies analyst notes that monsanto's new strategy to go after market share may put price pressures on dupont and syngenta. dupont is a much more diversified manufacturer with its chemicals business in plastics, construction, and other uses. that stock saw little change today. but the swiss-based syngenta is much more focused in the farm fields. it's stock hit a one-month low. there was another earnings report from a farm-focused firm, tractor supply company. results were much better than expected and it raised its forecast. shares are less than $1 away from a new all-time high. retailer family dollar is about $2 away from a new all-time high after a similar story, better than predicted quarterly profits and an improved outlook. three other volume spikes, a.i.g. is close to a six-month
high tonight. massey energy shares continue dropping from the mine explosion and e.o.g. resources is at a new high after a texas oil discovery. there was plenty of interest in holding government debt. uncle sam auctioned off $21 billion of ten year bonds, seeing the heaviest appetite since the mid-1990s. this is a two year chart of the interest rate on a ten year bond. interest rates have backed down slightly from 4% thanks to the buying interest. still, bond interest rates have been trending higher since early 2009. just as dow 11,000 is a psychological mark for stock investors, the same can be said for a 4% interest rate on the ten year government bond. and that's tonight's "market focus".
>> tom: our guest is waitsing for a stock pullback and playing defense. he's michael farr, president of farr miller and washington, and author of "a million is not enough." michael, welcome back to n. b. r.. >> thank you tom, always an honor to be with you. >> tom: so looking for a pullback. how soon, how far and how long? >> it may have started today, tom. we've had 43, 44 trading days in a row now where we haven't seen a single 1% pullback. we've had about a 75% run from the march lows last year, again without a full 10% correction. somewhere in here trees don't grow to the sky, and we're due for a little pause. >> tom: i want to take a look at a one-year chart of the s&p
500 to show that huge spike up clearly that we've seen in stock prices. do you think this pullback is going to be any different in tone or magnitude compared to the one we saw in mid january into february? >> that really is kind of a cliff hanger of a question really. it could be, because we can't really tell what's going on over in greece with that particular potential default of those greek bonds, what's going to happen to the euro,. the u.s. feels okay, we saw bond yields fall this afternoon as bond prices spiked. that felt good here in the u.s., and we're getting still fairly benign language out of the fed. so for the time being i don't expect it to be particularly major. but i expect something here. >> tom: as you're expecting something, i know that you're also putting new money to work in the market, including monsanto. we spoke about the earnings call earlier in the program, share price down by 2.5%, close to a 52-week low. >> it's perfect, you buy them when people hate them.
monsanto had their roundup go off of patent. monsanto spends a lot of time doing genetically engineered seed. the world's population is going to double by 2050. we've got to feed that worlds population, monsanto trading at 15, 16 times next year's earnings. earnings growth still in the double digits. 1.5% kind of a dividend. we think that this is a very interesting way to participate in a global growing demographic that's still going to be dependent on food. >> tom: our final 45 seconds, monsanto is your 11th pick. did you have your top 10 stock picks for 2010 you delivered back in late december. let's take a look at how they've been doing versus the s&p 500. clear outperformance, better than 1% better than the overall market with some leaders including nokia, cvs and paterson's dental. what to account for this better performance, michael? >> i think we've had a fairly defensive posture throughout this particular rally and we remain defensive. i talked last time we said
that cvs and nokia were a little more aggressive. right now it's fortunate to be ahead in a one-quarter period. we hope that lasts through the year. it did pretty well last year, but we're crossing our fingers. >> tom: we'll note that the full list and performances is found at our website, nbr on pbs.org. any disclosures? >> i own every one of them, my firm owns them and we own them in the touchstone fund of which we're the manager. >> tom: always great to catch up with you, nice to speak with you. >> it's a plaesher. >> tom: michael farr, author of "a million is not enough." >> susie: here's what we're watching for tomorrow. weekly jobless claims and march chain store sales are released. then, with april 15 just a week away, our tax guru kevin mccormally is back with tax tips. also tomorrow, buying and selling a business, using a broker-- a business broker. how new opportunities are popping up for people looking for a new way to make money.
federal regulators proposed tougher new rules today for asset-backed securities. those are the bundled loans that helped spark the market's collapse in 2008 and nearly brought down the financial system. the proposal from the securities and exchange commission calls for financial institutions to hold at least 5% of the loans they bundle and sell. they'd also have to expand their disclosure to investors. >> tom: a twist tonight in the toyota recall saga. the associated press has learned that a u.s. toyota executive wrote an email to higher ups at the auto giant five days before a massive recall. it said, quote, "we need to come clean" about accelerator problems. the a.p. obtained the internal email written by irv miller, toyota group's vice president for environment and public affairs. the note went on to say, quote, "the time to hide on this one is over." miller has since retired.
>> susie: in the "money file" tonight, why foreign bond funds can be a dicey choice for everyday investors. here's eric schurenberg, editor- in-chief at "cbs moneywatch". >> one of the pillars of a well-rounded investment portfolio is international stocks. you own some, don't you? owning foreign stock funds lets you ride economies that may be healthier than ours, and lets you earn some of your investment profits in a currency other than
the dollar. so when the dollar falls, your foreign stock funds rise, because they pay off in a currency that's suddenly worth more to americans. so, owning global stocks is smart. then it follows, doesn't it, that owning foreign bonds is also smart. right? well, not necessarily. bonds, let's face it, are supposed to be the safe part of your asset mix. they're the designated driver that gets you home safe on those occasions when stocks get a little irrationally inebriated. high-quality bonds held up well in the crash of 2008, remember, and helped offset losses in stocks. problem is, foreign bond funds won't reliably do that. it's not because foreign bonds are intrinsically riskier than u.s. bonds. the risk comes from the currency effect. because they own bonds denominated in foreign currencies, their prices in dollars bounce around with fluctuations in exchange rates. all of a sudden, you have to wonder what happened to the safe part of your portfolio. the records show foreign bond
funds tend to be twice as risky as their american counterparts. the standard financial advice has long been that you should own only bonds that pay interest in the currency you use to buy food and shelter. standard, but still good advice. i'm eric schurenberg. >> tom: that's "nightly business report" for wednesday, april 7. i'm tom hudson. goodnight everyone, and goodnight to you too, susie. >> susie: good night, tom. i'm susie gharib. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: